Lockheed Martin In Focus After Pentagon Again Halts F-35 Deliveries

Shares of Lockheed Martin (LMT) are in focus after a report that the U.S. Department of Defense has again stopped accepting deliveries of the company’s F-35 jets.

PENTAGON HALTS F-35 DELIVERIES: The Pentagon has stopped accepting most deliveries of F-35 jets from Lockheed Martin due to a fight over who will cover costs for fixing a production error found last year on over 200 of the jets, Reuters reported Wednesday. “Production on the F-35 program continues and we are confident we will meet our delivery target of 91 aircraft for 2018,” a Lockheed spokeswoman said. “While all work in our factories remains active, the F-35 Joint Program Office has temporarily suspended accepting aircraft until we reach an agreement on a contractual issue and we expect this to be resolved soon.” The move comes after the Department of Defense stopped accepting deliveries for 30 days in 2017 after finding corrosion where the carbon fiber exterior panels were fastened to the airframe. Deliveries resumed after a fix had been developed and Lockheed achieved its target aircraft delivery numbers for 2017. Deliveries have been halted again due to an argument over who will pay for the likely complex logistical fix that may require technicians to travel widely to fix the aircraft based around the world. In addition, the weapons program experienced a slowdown of deliveries in 2016 as a fix was necessary for insulation problems in the fuel tanks and lines of the jets.

WHAT’S NOTABLE: The latest annual program review published by the U.S. Department of Defense has called on Lockheed Martin to reduce the current forecast of $1.1T to maintain the F-35 jetfighter program through 2077, Bloomberg reported on April 5. The document demanded that the company “embrace much-needed supply chain management affordability initiatives” in order to decrease costs on the next-generation stealth fighter. The $1.1T estimate to sustain the U.S. fleet was compiled in 2015 by the Pentagon’s independent cost assessment office but has not yet been updated. It is expected to be updated next year prior to a meeting of acquisition officials to decide whether the program should enter full production. The report said that under current estimates, “the projected F-35 sustainment outlays are too costly” and “given planned fleet growth, future U.S. service operations and support budgets will be strained.”